Kenya has signed a newly proposed 2015 Model Production Sharing Contract (PSC) which will prevent the country from having to pay taxes for oil companies.

This new oil production-sharing model is beneficial to the country and excludes clauses present in the previous model that allows oil companies produce oil at a great benefit.

According to a report released by Oxfam, a civil organization group, this 2015 Model Production Sharing Contract will allow Kenya earn an additional Sh50 billion from the Turkana fields alone. “The 2015 terms would generate an additional $500 million (Sh50 billion) for the Government over the life cycle of the project,” the report said.

The new model will also allow Kenya relinquish the burden of paying taxes for oil companies compared to the former model where the country pays taxes on behalf of the oil firms from its share of oil incomes.

“The second main change between the 2008 and 2015 models relates to the applicability of corporate income tax,” it noted adding that some studies carried out on Kenya’s petroleum fiscal system had revealed that company income tax is an independent revenue system for the government.

In most production sharing schemes, oil is at first distributed so the operator of the PSC can recover its expenses. Under the terms of the 2008 model contract, profit oil is distributed based on the capacity of production.

On Block 10A situated in the Marsabit County for example, the Government was supposed to receive 55% of output for the first 10,000 bopd, while the company will receives 45%. But since Tullow Oil which was the owner of the block had surrendered the block to the Government in 2014, the split changes to 60% for the government and 40% for the company.

Small projects with low expenses can produce high revenues, while large projects with high expenses might not generate much revenues at all. The 2008 model contract however, had included a windfall tax established to attract more revenue when the price of oil rises in the global market, Standard media news reports.

Anita Fatunji